Attention: | Michael Volley |
Re: | Encore Capital Group, Inc. |
1. | We note your response to comment 2 and your enhanced disclosure on page 54 of your September 30, 2016 Form 10-Q describing the adjustment amount applied to principal on receivables portfolios in arriving at your non-GAAP performance measure, Adjusted EBITDA. Please tell us how you considered Question 100.04 of the Compliance & Disclosure Interpretations on non-GAAP measures updated on May 17, 2016 in determining that the adjustment amount applied to principal on receivables, which increases earnings for the principal portion of cash received related to the receivables portfolio, does not represent an individually tailored revenue recognition method. Alternatively, please remove this adjustment in your calculation of Adjusted EBITDA used as a performance measure in future filings. |
2. | Please explain the differences, if any, in the calculation of Adjusted EBITDA with respect to your debt covenants. Please note the guidance in Question 102.09 of the Compliance & Disclosure Interpretations on non-GAAP measures updated on May 17, 2016 relates to the use of a non-GAAP measure used in a material debt covenant for liquidity purposes and disclosure or a discussion of your financial condition only. |
Year Ended December 31, | |||||||||
2016 | 2015 | 2014 | |||||||
GAAP net income, as reported | xxxx | $ | 47,384 | $ | 98,278 | ||||
Adjustments: | |||||||||
Loss (gain) from discontinued operations, net of tax | xxxx | 23,387 | (5,205 | ) | |||||
Interest expense | xxxx | 186,556 | 166,942 | ||||||
Interest income(1) | (xxxx) | — | — | ||||||
Provision for income taxes | xxxx | 27,162 | 48,569 | ||||||
Depreciation and amortization | xxxx | 33,160 | 27,101 | ||||||
Amount applied to principal on receivable portfolios(2) | xxxx | 628,289 | 614,665 | ||||||
Stock-based compensation expense | xxxx | 22,008 | 17,181 | ||||||
Acquisition, integration and restructuring related expenses(3) | xxxx | 15,528 | 18,771 | ||||||
Settlement fees and administrative expenses(4) | xxxx | 63,019 | — | ||||||
Adjusted EBITDA | xxxx | $ | 1,046,493 | $ | 986,302 |
(1) | In previous years we did not include interest income as an adjustment because it was immaterial. Beginning in the fourth quarter of 2016, we are including interest income as an adjustment to conform to the method of calculation presented in our Restated Credit Agreement. Interest income for the years ended 2016, 2015 and 2014 was $xxxx, $1,498 and $723, respectively. |
(2) | Amount represents collections from receivable portfolios that are not included in consolidated revenues as a result of accounting principles that require the application of such collections to amortize the principal of such receivable portfolios. Amount represents (a) gross collections from receivable portfolios less (b) revenue from receivable portfolios, net. We adjust for this amount because (a) the method is materially consistent with the calculation method contained in covenants used in the Restated Credit Agreement our revolving credit and term loan facility and (b) it represents actual cash collections, which we believe is a useful indicator of our operating performance relating to our cash collections. and we believe this measure is a useful indicator of our ability to generate cash collections in excess of operating expenses through the liquidation of our receivable portfolios. |
(3) | Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because (a) the method is materially consistent with the calculation method contained in covenants used in the Restated Credit Agreement and (b) we believe these expenses are not indicative of ongoing operations; therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results. Pursuant to an amendment in December 2016, the Restated Credit Agreement refined the definition of acquisition, integration and restructuring related expenses, which we have applied from the date of the amendment. |
(4) | Amount represents litigation and government settlement fees and related administrative expenses. For the year ended December 31, 2016 amount consists of settlement and administrative fees related to certain TCPA settlements. For the year ended December 31, 2015, amount relates to the consent order with the CFPB that we entered into in September 2015. We believe these fees and expenses are not indicative of ongoing operations; therefore adjusting for these expenses enhances comparability and adjusting for these fees and expenses makes it easier to compare to prior periods, anticipated future periods, and our competitors’ results. Adjusting for these settlement and administrative fees is materially consistent with the calculation method contained in covenants used in the Restated Credit Agreement our revolving credit and term loan facility. |
• | the Company is responsible for the adequacy and accuracy of the disclosure in the filing; |
• | Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and |
• | the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
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